India Must Do A China To Avoid A Trade War With The US – Analysis

A pragmatic problem solving approach to the India-US trade spat is likely to yield New Delhi much greater dividends than an openly confrontational one.

By Harsh V. Pant

The US-China trade war seems to be coming to an end as reports of a possible deal have gathered momentum in
recent days. US secretary of state Mike Pompeo has expressed optimism
that trade talks with China aimed at ending tariffs on hundreds of
billions of dollars worth of products will be successful. Treasury
secretary Steven Munchin has also suggested that the two sides were
getting closer to a trade deal and White House economic adviser Larry
Kudlow has underlined that “the progress (between the two countries) has
been terrific”. Negotiations are reportedly in the last leg as the two
sides plan a summit for the end of March at Mar-a-Lago, US President
Donald Trump’s Florida resort. Despite the hype, it still remains to be
seen if the US-China trade deal actually goes through.

If a deal is reached, the US would roll back tariffs on at least $200 billion in Chinese goods while China would reduce industry-specific levies like those on autos. Meanwhile, China is also gearing up to pass a new foreign investment law to
provide a level-playing field to global investors with legal safeguards
on Intellectual Property Rights (IPR) and technology transfer, thereby
meeting a key demand of the Trump administration. This draft foreign
investment law will be submitted to the National People’s Congress of
China for review and is likely to be put to vote soon.

The
two countries plan to set up a mechanism to hold regular consultations
at various levels of the US and Chinese governments to address trade
irritants. According to US trade representative Robert Lighthizer, the
US will respond with “proportional” and “unilateral” action like
tariffs, if talks fail to achieve the desired result. The Trump
administration is still debating the wisdom of lifting duties at the
start of a deal because keeping some tariffs in place would allow the US
to maintain leverage.

The US and China, the two largest global
economies, are locked in a trade war since Trump imposed heavy tariffs
on imported steel and aluminum items from China in March last year,
which led to China imposing tit-for-tat tariffs on billions of dollars
worth of American imports.

Though a US-China trade deal would be good news for the global economy facing
crises on multiple fronts, it is not readily evident if the structural
issues that bedevil US-China trade relations will disappear anytime
soon, even with a possible deal. However, the Chinese are essentially
pragmatists and have recognized the need to reach a modus vivendi with
Trump. Much before Trump made “transactionalism” popular, Beijing’s
approach was transactional in more ways than one.

Trump
notwithstanding, the strategic logic of Indo-US engagement is quite
clear to policy makers on both sides. Given that these are election
times, the temptation in India will be to play to the gallery. However,
as the Chinese have shown, quiet diplomatic engagement might be the best
way forward for India.

A pragmatic problem solving approach is likely to yield New Delhi much greater dividends than an openly confrontational one.

Observer Research Foundation

ORF was established on 5 September 1990 as a private, not for profit, ’think tank’ to influence public policy formulation. The Foundation brought together, for the first time, leading Indian economists and policymakers to present An Agenda for Economic Reforms in India. The idea was to help develop a consensus in favour of economic reforms.

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